Mortgages may be underwritten by evaluating a mortgage applicant's credit, collateral, and capacity to pay. A preliminary evaluation of credit is typically performed by mortgage originators (that is, loan representatives for mortgage brokers and mortgage lenders) prior to submitting the loan application to underwriting. This evaluation is typically done by examining a tri-bureau merged credit report, which is created for the mortgage originator by a credit reporting agency by merging the consumer files provided by the three dominant credit bureaus: Experian, TransUnion, and Equifax.
Nearly all mortgage applications list either a single applicant, or two applicants of which one is the primary applicant and the other is the co-applicant. In the case of two applicants, their credit is typically evaluated separately.
Nearly all mortgages are underwritten using credit scores. The credit score used for underwriting each applicant is the mid-score; that is, the median among the three credit scores computed from the three credit bureaus.
In addition to the mid-score, other credit information generally used in underwriting consists of negative payment history on mortgages, the presence of unpaid collection accounts on public records, and the presence of accounts in credit counseling.
Capacity to pay in mortgage underwriting is typically evaluated using debt-to-income ratios. By convention, underwriters do not consider installment loans with 10 months of payments or less remaining and authorized user accounts in the debt-to-income ratios.
Mortgage originators often are required by lenders to obtain a new credit report after the initial evaluation and prior to closing on the mortgage, so that the period between underwriting and closing is not so long such that the information could have changed significantly. As a result, mortgage originators are concerned not just about the mid-score as it is when they obtain a credit report, but also about the potential for it to drop prior to closing the loan.
Authorized user accounts are included in the credit score calculation. They can be easily removed from the credit report and score calculation if they are having a negative effect on the credit score.
Mortgage lenders will generally refuse to underwrite an application where any of the accounts on the credit report is in dispute.
Mortgage originators also find it useful to know whether their applicants have been shopping around for mortgages prior to coming to them. This can be determined from the credit report by the presence of credit inquiries from other mortgage originators.
In addition to credit information, consumer credit files can also contain alerts of various kinds of dangers to the underwriting process, including possible fraud and presence on the OFAC prohibited parties list. Mortgage originators need to pay attention to these alerts for legal and policy compliance.
Unfortunately, all of the foregoing disparate factors can have an impact on the mortgage originator's evaluation of an applicant's credit. However, trying to keep track of this data can be a significant challenge for the mortgage originator, particularly given the varied nature and distributed character of such data. It would therefore be advantageous to provide a system and method capable of analyzing, condensing, and reporting the most relevant portions of data that would affect the mortgage originator's evaluation into a single, human-readable report.